Virginia Code 38.2-1380: Requirements of a principle-based valuation.
A. An insurer shall establish reserves using a principle-based valuation that meets the following conditions for policies or contracts as specified in the valuation manual:
Terms Used In Virginia Code 38.2-1380
- Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
- Commission: means the State Corporation Commission. See Virginia Code 38.2-100
- insurer: means an entity that (i) has written, issued, or reinsured life insurance contracts, accident and health insurance contracts, or deposit-type contracts in the Commonwealth and has at least one such policy in force or on claim or (ii) has written, issued, or reinsured life insurance contracts, accident and health insurance contracts, or deposit-type contracts in any state and is required to hold a certificate of authority to write life insurance, accident and health insurance, or deposit-type contracts in the Commonwealth. See Virginia Code 38.2-1365
- Liabilities: The aggregate of all debts and other legal obligations of a particular person or legal entity.
- Oversight: Committee review of the activities of a Federal agency or program.
- Principle-based valuation: means a reserve valuation that uses one or more methods or one or more assumptions determined by the insurer and is required to comply with § Virginia Code 38.2-1365
- Process: includes subpoenas, the summons and complaint in a civil action, and process in statutory actions. See Virginia Code 1-237
- Tail risk: means a risk that occurs either where the frequency of low probability events is higher than expected under a normal probability distribution or where there are observed events of very significant size or magnitude. See Virginia Code 38.2-1365
- Valuation manual: means the manual of valuation instructions adopted by the NAIC as specified in this article or as subsequently amended. See Virginia Code 38.2-1365
1. Quantify the benefits and guarantees, and the funding, associated with the contracts and their risks at a level of conservatism that reflects conditions that include unfavorable events that have a reasonable probability of occurring during the lifetime of the contracts. For policies or contracts with significant tail risk, reflects conditions appropriately adverse to quantify the tail risk;
2. Incorporate assumptions, risk analysis methods and financial models, and management techniques that are consistent with, but not necessarily identical to, those utilized within the insurer’s overall risk assessment process, while recognizing potential differences in financial reporting structures and any prescribed assumptions or methods;
3. Incorporate assumptions that are derived in one of the following manners:
a. The assumption is prescribed in the valuation manual.
b. For assumptions that are not prescribed, the assumptions shall:
(1) Be established utilizing the insurer’s available experience, to the extent it is relevant and statistically credible; or
(2) To the extent that insurer data is not available, relevant, or statistically credible, be established utilizing other relevant, statistically credible experience; and
4. Provide margins for uncertainty, including adverse deviation and estimation error, such that the greater the uncertainty the larger the margin and resulting reserve.
B. An insurer using a principle-based valuation for one or more policies or contracts subject to this section as specified in the valuation manual shall:
1. Establish procedures for corporate governance and oversight of the actuarial valuation function consistent with those described in the valuation manual.
2. Provide to the Commission and the board of directors an annual certification of the effectiveness of the internal controls with respect to the principle-based valuation. Such controls shall be designed to assure that all material risks inherent in the liabilities and associated assets subject to such valuation are included in the valuation, and that valuations are made in accordance with the valuation manual. The certification shall be based on the controls in place as of the end of the preceding calendar year.
3. Develop, and file with the Commission upon request, a principle-based valuation report that complies with standards prescribed in the valuation manual.
C. A principle-based valuation may include a prescribed formulaic reserve component.
2014, c. 571.